Gold prices rebounded modestly on Wednesday, getting a boost as the dollar pulled back from a 14-year high.
Gold for February delivery
added $1.50, or 0.1%, to $1,135.10 an ounce, partly recovering from a 0.8% loss on Tuesday.
The metal has dropped 6.2% over the past month, weighed by a rising dollar and higher interest rates. As gold is priced in dollars, any advances for the greenback makes the metal more expensive for other currency holders. Additionally, rising yields make it more attractive to invest in assets that pay interest, which gold does not.
On Wednesday, the dollar lost ground against most major currencies, with the ICE Dollar Index
falling 0.1% to 103.21. The dollar gauge on Tuesday closed at its highest level since December 2002, according to FactSet data.
Gold investors, however, shouldnt get too excited about Wednesdays rise, as its likely to be short-lived, according to Mihir Kapadia, chief executive officer at Sun Global Investments.
The precious metal faces a further downward pressure as it yields no interest in a world of likely rising interest rates and bond yields. We expect this trend to continue for the next few months, he said in a note.
Gold and silver are poised for their first yearly gains since 2012. Gold is headed for a roughly 6% gain for 2016, boosted by early-year gains. The price of gold fell back in the wake of Donald Trumps surprise victory in the U.S. presidential election, which brought hopes for a large fiscal stimulus plan. That outlook prompted upward revisions to expectations for additional monetary tightening by the Federal Reserve.
Looking ahead, we think that there is a risk that the price of gold might fall further in the coming months as the Fed hikes rates more aggressively in response to some of Trumps more inflationary policies, said commodities analysts led by Caroline Bain, at Capital Economics, in their year-ahead outlook.
We see gold recovering over the medium term, as demand for inflation hedges picks up and ongoing geopolitical uncertainty ensures that safe havens remain well supported, the analysts wrote, pinning that view on the uncertainty around populist political moves in the U.S. and the eurozone.
While gold is hard to value objectively, the prices of equities and bonds look more stretched especially in the U.S., they said.
In other metals trading Wednesday, silver
fell 0.1% to $16.10 an ounce, while copper
gained 0.2% to $2.51 a pound.
lost 0.8% to $916.20 an ounce and palladium
gave up 1.1% to $664.40.
As for the exchange-traded funds, the SPDR Gold Trust
declined 0.7% premarket, while the VanEck Vectors Gold Miners ETF
was up 0.3%.